Should a deal materialize between Anthem and Cigna — respectively, the second-largest and fourth-largest publicly traded U.S. health insurers by total revenue — the merged business likely would encounter branding issues in 14 states where Anthem operates as Blue Cross or Blue Cross/BlueShield, Moody's Corp. said Wednesday in an analysis.

Additionally, health insurance clients of both companies could experience service and/or network disruptions as business units migrate from one firm's operating system to the other. The report also said Anthem had not clarified how it would preserve client service levels while shedding about $2 billion in post-merger “operating synergies.”

“Since the proposed transaction has not been a collaborative effort by the two companies, the business integration component of the merger is somewhat vague,” Stephen Zaharuk, senior vice president at Moody's in New York, said in the report. “If and when the two companies come to an agreement on the terms of a deal, we anticipate a more complete business strategy surrounding the integration of the two companies. Until then, the proposed merger contains several operational risks.”

Earlier this week, New York-based rating agency Standard & Poor's Corp. said it had put Anthem and Cigna under review with negative implications, citing concerns about debt Anthem likely would need to assume to close its proposed $47 billion acquisition of Cigna, as well as complications arising from integrating the health insurers.

“There are several variables that are unknown at this time, including, but not limited to, the final price of such a transaction, management changes if any, financing details and regulatory hurdles,” Deep Banerjee, an associate director and credit analyst at S&P, said in the agency's report. “We will also be discussing with Anthem's management their risk tolerance limits in terms of their financial policy.”

In a separate report, New York-based Fitch Ratings Inc. also expressed concern that Anthem's bid to acquire Cigna would leave the combined company overleveraged in the near term, though it said it was holding off changing its rating until a transaction between the two companies becomes more probable.

So far, Bloomfield, Connecticut-based Cigna has rejected Anthem's bids, including the $47 billion proposal it made public during the weekend.

The combined company would generate about $115 billion in revenue with more than 53 million members, Anthem CEO Joseph Swedish said Monday during a conference call with investment analysts.

Long-term benefits

Despite concerns about potential deterioration of its financial risk profile, Moody's, S&P and Fitch analysts agreed that Anthem's proposed acquisition of Cigna would position it well in the U.S. health insurance marketplace, benefiting from a substantial increase in scale and diversification of its operations.

“Fitch believes the increasing role of the federal government in health insurance is making size/scale and market positioning even more critical to the future success of health insurance organizations,” Fitch analysts said in their report, adding that a merger of Anthem and Cigna would be timely, given the increasing likelihood of additional industry consolidation.

“While Fitch believes UnitedHealth Group Inc. would still be well-positioned without further participation in industry consolidation, any of the remaining top four players, including Anthem, Cigna, Aetna Inc. and Humana Inc. could be compromised competitively if others participate, and they are excluded,” the report said.